The value relevance of earnings and income smoothing : Greek evidence on causality effects

Abstract

The present paper examines the existence of causality between income smoothing and value relevance of earnings for a sample of firms listed in the Athens Stock Exchange. Using a switching regression model we find evidence suggesting that the low information content of earnings may be a motive for managers to engage in actions that signal the existence of income smoothing. A potential explanation for our results is that management uses income smoothing in order to maximize its utility rather than to affect investors expectations about the future prospects of the firm in the market.